Polluters could get $4bn if carbon tax axed

Experts forecast Australia’s largest ­polluters could make windfall gains totalling up to $4 billion from the repeal of the carbon tax because the government will have to compensate them for free permits issued beyond the ­scheduled abolition date.

But business lobby groups say delaying repeal of the tax beyond the ­Coalition’s target date would create uncertainty for business and higher costs for consumers.

Legal, industry and climate experts said the government could be liable to refund trade-exposed emitters for the free permits and other industry assistance they will be eligible for next ­financial year.

If the carbon tax is not abolished by the end of October 2014, three months into the new financial year, that liability would be as high as $4 billion.

The government denies it has this financial exposure and says that if the bill is passed after July 1, 2014, the clauses which make the abolition of the carbon tax retrospective to July 1 would eliminate the case for compensation.

ETS better than ongoing uncertainty, says Willox

“It’s designed to deal with all ­circumstances,’’ said Environment Minister
Greg Hunt
.

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With Australia in its seventh year of carbon policy debate, energy generators, manufacturers and industry called for certainty. They face at least another year of policy turmoil with the carbon price being unravelled and then having to adapt to the Coalition’s ­alternative direct action policy.

Australian Industry Group chief executive
Innes Willox
said his preference was to abolish the policy ­altogether before July 1, but if the situation became intractable, his organisation could support Labor’s alternative which is to shift from the current fixed carbon price straight to an emissions trading scheme on July 1, linked to the low-price European market.

“The simple solution is to get rid of it well ahead of July 1 so people have some certainty,’’ he told The Australian Financial Review.

“We’ve always said we want a ­market-based mechanism with least cost. That’s our final position. We’re not averse to what Labor did, or a ­version of it.’’

Labor went to the election promising to end the fixed-price carbon tax a year early on July 1, 2014, and implement an ETS. Mr Abbott's legislation seeks to abolish the price on carbon altogether on June 30, 2014 and replace it with his direct action plan in which $1.6 billion would be spent over the next three years to pay polluters who agree to lower emissions. It is not a market mechanism like an ETS or carbon tax.

Labor planning ambush

When parliament resumes, Labor is considering an ambush in which it would move either amendments or a private members bill that would reduce the fixed carbon price to zero immediately and then become an ETS on July 1.

If accepted this would blow a $3 billion hole in the budget through lost ­revenue and require the government to compensate industry for the free permits they have been given this financial year. The Coalition opposes any price on carbon, including an ETS, meaning it would reject the Labor tactic.

More likely, Mr Abbott will have to wait until the new Senate sits after July 1 and abolish the tax retrospectively.

Mr Palmer, whose party will hold a key role in that decision, supports abolishing the carbon tax but only if his party is given more resources and the government reimburses the $10 billion revenue the carbon tax generated in 2012-13 and 2013-14.

Mr Abbott has flatly rejected these demands, signalling a tough negotiation ahead.
Tim Reardon
from the National Generators Forum said if the tax was not abolished before July 1, 2014, uncertainty would rise and extra risk would be written into electricity supply contracts between generators and retailers.

“The longer there’s uncertainty, there will be a risk potential and that cost will be passed on to consumers,’’ he said. “The market needs to know if and when the carbon price will be gone.’’

Grounds for compensation

He said the carbon price would continue to be passed on and, if the tax were repealed retrospectively, it would be difficult to calculate how much to refund retailers and, hence, consumers.

Mr Willox said there were myriad problems with retrospective repeal and the longer it took to pass the bill beyond July 1, the more complicated the ­problems would be.

He said for example, refrigerants are now hit with an import duty to cover the carbon tax. There would be questions about how to recoup those duties, especially as import contracts are written in advance.

“Refrigerants are a huge issue,’’ he said.

If, too, the carbon tax was still law after July 1, the big trade-exposed ­emitters, which are entitled to compensation, will start to claim free pollution permits which, by October 31, will be worth $3 billion.

On September 1, energy companies will be entitled to another $1 billion in assistance. These permits are a property right and legal Professor George Williams and the Climate Institute’s
John Connor
said there would be grounds for compensation, despite what Mr Hunt said.

So too, did energy and carbon research firm RepuTex, which said “in such a scenario, the metals, energy, and power sectors stand to receive a significant cash windfall, while avoiding almost all liability for their emissions".

“The longer it takes, the messier it will be," Professor Williams said.